SA Budget 2020/21 – Export of dual listed securities – Proposed income tax amendments

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Authors: Tsanga Mukumba and Louis Botha.

Under South Africas current exchange control (Excon) rules, South African residents are required to seek approval from the South African Reserve Bank (SARB) should they wish to export a South African listed security outside of the Common Monetary Area. As a result of the proposed modernisation of South Africas Excon regime, discussed in the Exchange Control section of our Budget Alert, under which the SARBs permission will no longer be required, it is proposed that such an export results in income tax consequences. Specifically, the Budget proposes that such a transfer now constitute a deemed disposal of that security for income tax purposes, with further consequences once the share is traded on the relevant foreign exchange.

In the context of a dual-listed company, where a South African resident shareholder holds shares listed on a South African exchange, it can give instructions to have the share removed from the South African securities registry and placed onto the foreign securities registry. This constitutes an export for exchange control purposes and would require the prior approval of the SARB.
Considering the proposal in the Budget that this be treated as a deemed disposal, the proceeds from such deemed disposal will be capital or revenue in nature, depending on whether it was held as trading stock or a capital asset in the South African residents hands.

Essentially, it appears that to prevent the transfer of securities abroad in the dual-listed context, adverse tax consequences will arise, as opposed to adverse Excon consequences, as is the case under the current Excon regime.